Hurricane may cause freight costs to spike

NEW YORK — The looming impact of Hurricane Florence on the mid-Atlantic region of the United States could cause freight costs to spike again, which may lead to challenges for several food companies, according to a Sept. 12 report from Credit Suisse.

“Storms like these tend to provide a net positive to processed foods companies’ sales trends because consumers stock up on supplies,” Robert Moskow, research analyst with Credit Suisse, wrote in the report. “However, distribution costs tend to shoot higher as food processors scramble in a tight supply environment to get truck drivers to show up at their facilities. We will have a better sense in the next couple of weeks whether Florence causes spot prices for freight to spike and whether it will shape contract rates for next year.”

Mr. Moskow specifically mentioned three companies that may be most vulnerable to Florence as it relates to transportation. Those companies are B&G Foods, Dean Foods Co., and TreeHouse Foods, Inc. He said all three companies missed Credit Suisse’s second-half 2017 EBITDA estimates largely because of unexpected freight inflation, a factor that could come into play depending on the impact of Hurricane Florence.

“We view Dean and TreeHouse as highly vulnerable in our group to another freight shock because they operate at very thin margins, and we view B&G as vulnerable because it assumed that its freight inflation would decelerate to zero by 4Q,” Mr. Moskow said. “These companies responded to last year’s storm-related freight inflation by locking into contracts with a broader set of freight suppliers to help reduce their exposure to the spot markets going forward, but this doesn’t fully insulate them from market volatility.”

Another company with high manufacturing and logistics exposure to Hurricane Florence’s potential path is Campbell Soup Co. According to Credit Suisse, the company has made plans to temporarily halt production at its soup processing facility in Maxton, N.C., during the storm and has taken steps to pre-ship some truckloads of product to major customers along the East coast before freight lanes heading east are shut down.

“Our sense is that these issues will put pressure on Campbell’s profit margins due to higher costs,” Mr. Moskow said.